new US exchanges are looking to make their mark

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When it came to choosing a US listing location, there was no choice but the New York Stock Exchange and its downtown rival Nasdaq. But some new entrants to the exchange game are looking to create businesses with new approaches.

They hope to attract listings with proposals that are based in part on corporate aspirations, strategy or identity, rather than just the level of fees or trading liquidity. In June, the Texas Stock Exchange made waves with its plans to enter the industry, seeking to attract companies “demanding more stability and predictability in terms of listing standards and associated costs.” Then, in July, the Green Impact Exchange filed a regulatory application for an exchange that lists companies with a sustainability strategy.

“More market participants are using non-financial criteria or long-term factors in how they think about investments,” said Matthew Josefy, a strategist at Indiana University’s business school. “It’s a reasonable proposition that a new exchange could be positioned around these issues.”

There are already 16 regulated US exchanges, although the NYSE, Nasdaq and Chicago-based Cboe Global Markets own 12 of them, and most others prioritize trading, not listing. “The focus on listings is different from what we’ve typically seen from new exchanges. They’re trying to fill a need, and that’s good,” said Joe Saluzzi, co-founder and head of equity market structure research at broker Themis Trading.

But in doing so, the new entrants are stepping into areas that have sparked culture wars and debate, such as board diversity and climate change — a sharp departure from the usual approach of stock exchanges around the world, which strive to be seen as visible champions of a country’s business prowess, but quietly neutral in their rules.

GIX’s filing came months after the Securities and Exchange Commission was sued over the introduction of rules requiring companies to step up their climate risk disclosures. And TXSE in Dallas has been described as the anti-revival exchange, despite being apolitical. His presentation on the predictability of listing standards was seen by some as an attempt at controversial 2021 board diversity requirements introduced by Nasdaq, which are currently being challenged by conservative groups in court.

GIX plans to offer secondary, not primary, listings, allowing a company to retain its NYSE or Nasdaq price status while bolstering its green credentials, albeit at an additional cost. GIX says its value lies in a company following its rules or being delisted – something companies try hard to avoid.

“For investors who have bet on a company for the long term, there is real value when a regulated exchange says that ‘this company has achieved a level of transparency about its sustainability plans’, rather than having achieved a certain level of greenery for now. ” said Dan Labovitz, GIX chief executive and former NYSE official.

TXSE has not said anything since an initial announcement in June, when it offered $120 million in financing from a group that includes Citadel Securities and BlackRock. He also talked about the appeal of his home state, which is now home to more of America’s biggest companies than any other.

Success for newcomers is far from guaranteed. Exchanges that have previously tried to compete with the NYSE and Nasdaq for listings have been unsuccessful at best. The Long Term Stock Exchange launched listings in 2021, offering secondary listings with a focus on companies that are establishing long-term growth strategies, including how executive compensation has aligned with those plans. Its short-term results were disappointing. So far the LTSE has attracted only three listings, one of which has since exited.

Before that there was the Investors Exchange (IEX). It started a listing business in 2017, a year after launching as an exchange, with plans to challenge the dominance of high-frequency trading in US markets. This followed her rise to fame in 2015 thanks to the Michael Lewis book Flash Boys: A Revolt on Wall Street. It attracted only one company from Nasdaq before admitting defeat in 2019. But even IEX sees potential for new entrants.

“Beyond the NYSE and Nasdaq duopoly, everything else about the equity markets is much more competitive. This suggests there should be more opportunities to enter the listings business,” said John Ramsay, IEX director of market policy.

Privately, the firm’s advisers acknowledge that their clients often choose between the NYSE and Nasdaq based on the CEO’s personal preferences rather than any business or financial factors. A little more choice would make things more interesting for companies and investors.

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